The country's foreign exchange reserves have already
exceeded the target of $ 12 billion set for the fiscal year ending on
June 30, 2004. According to latest figure released by the State Bank of
Pakistan reserves have reached about $12.5 billion on April 30 despite
the fact that the country paid about $ 1.4 billion of expensive loans
before becoming due because the same carried a higher rate of interest.
This is an all time high record in country's history.

The government has taken a policy decision for
premature retirement of all expensive debts of about 10 billion dollars
specially obtained from the international monetary fund at penal rates
of interest of about 10 percent and above. Keeping a reserve of 12
billion dollars, which is sufficient to meet our 10 to 11 months of
imports requirement, all excess amount will be used for this purpose.

Besides prudent economic policies of the government
this phenomenal increase in forex reserves (presently $12.5 billion
about 600 million in 1999) has been made possible because of continued
rise in remittances from overseas Pakistanis which crossed $ 4 billion
last year (and is expected to follow the same pace this year) as against
less than a billion dollar in 1999. Expatriates are now sending home not
only a part of their income to financially support their dependents in
Pakistan, they are also sending some surplus as well because of enhanced
confidence and new investment opportunities emerging in the country.
Because of rupee stability and practically no difference between
official and open marketed conversion rates, almost all the remittances
are pouring in through official channels.

Because of the changed conditions on the boarder the
smuggling in the garb of Afghanistan Transit Trade (ATT) has come to an
end. Our trials chief under the protection of Afghanistan warlords
carried out the ATT and purchased about 2.5 to 3 billion dollars
annually from unofficial open and black market in Pakistan to finance
such trade. As a result the conversion rate in black and official market
was about Rs.5 more for a dollar than the official rate and this
promoted Pakistani Expatriate to use unofficial channels for transfer of
their money. This templation is no more there. For a difference of 10 to
20 paisas no-body is prepared to take a risk. Almost all of them now use
official channels. This is the main reason for this phenomenal rise on
our foreign exchange reserves.

Foreign exchange reserves play an important role in
the country's economy. Especially these are important for financing the
country's import and other international obligations as well as
stabilizing the value of domestic currency. However, recently the
reserves of the Asian countries have registered an extraordinary
increase mainly due to the two factors. First, at the time of Asian
crisis in 1997 the countries in the grip of crisis found to their dismay
that the International Financial Institutions (IFIs) and especially the
International Monetary Fund (IMF), due to their financial constraints,
were not in a position to rescue them from this situation. Therefore,
they decided to buildup their own reserves, which may work as a
safeguard at the time of crisis. Secondly, after the events of 9/11 this
process accelerated due to the strict rules and policies adopted by USA
and other European countries regarding the money transfer. Thus, the
reserves of the Asian countries increased due to increase in remittances
and to some extent exports. Looking at the world scenario, the foreign
currency reserves of the world increased by $ 870 billion during
1999-2003. Out of these reserves $665 billion belong to the Asian
countries. Presently there are seven Asian countries whose reserves have
exceeded $100 billion level. These are Japan, China, South Korea, Hong
Kong, India and Singapore. Pakistan is still for behind, but there has
been a significant improvement during the past few years.

In view of this encouraging indications the
government has asked the State Bank of Pakistan (SBP) to work on the
possibility of retiring expensive dept ahead of schedule after the
country's foreign exchange reserves exceed US $ 12 billion. Another
proposal being considered is that Pakistan should invest about 10
percent of its foreign exchange reserves through international
investment banks.

"Retiring expensive debt before schedule has
been discussed and the SBP has been asked to work out the details in
this regard. Such debts would be retired from the exchange reserves
available with government in excess of $10 billion", an official
source told this correspondent. He said Pakistan had got a breather in
terms of debt rescheduling by the Paris Club under which its bilateral
debt worth $ 12.6 billion has been re-profiled, which has translated
into a monetary benefits of approximately $3 billion over the years of
the agreed timeframe under the Paris Club agreements.

As a matter of fact this process of retiring
expensive debts has already started. Pakistan has paid SDR 44.078
million ($60.38 million) under contingency and compensatory to IMF.
These are IMF expensive resources, which Pakistan has stated paying as
per its policy to early repay the costly debts. Pakistan has to pay
total SDR 176.35 million ($241.59 million) under contingency and
compensatory of IMF. Total IMF facilities extended to Pakistan are to
the tune of SDR 1.44 billion ($1.97 billion). This payment was in
addition to SDR 3.158 million ($4.32 million) against Extended Fund
(Ordinary Resources) and SDR 18.75 million on standby (expectation),
which are normal due to repayments. According to the schedule, Pakistan
also paid SDR 5.178 million ($7.09) million as charges on ordinary GRA
Purchases on February 7, 2003.

Pakistan will start early repayment of selective
costly loans of IMF, Asian Development Bank and the World Bank by June
this year. Details in this respect are being worked out in the debt
management wing of the Ministry of Finance. "Currently the
country's total foreign debt liability is approximately $35 billion, of
which $ 12.6 billion is the official bilateral debt being re-profiled
under the Paris Club agreement, while Pakistan owes nearly $14.7 billion
in debt to the multilateral agencies", the official said.

As the country's debt burden sharply increased,
specially during the last two decades, the economy was burdened with a
high level of debt-serving liability. At one point of time it is said to
have consumed as much as two third of the total annual current
expenditure. Such a high cost of servicing the debts resulted in the
need for further borrowing over the years.